Definition of “covered by a retirement plan

Here is the situation. Husband is mid 50s, retired LEO, drawing state pension. Wife was also an LEO who retired mid-year & began drawing pension (she worked the first few months of the year, so has a W2 that indicates she is covered by a retirement plan). High investment income via money they inherited.

She cannot make an IRA contribution, since income is high & her W2 indicates she’s a retirement plan participant. But can a spousal IRA be made in his name (as mentioned, he is drawing from his pension; has no earned income, but she does).

Thoughts?



  • For 2020, the wife’s W 2 will again indicate she is covered by a workplace plan. Being covered only means that there are income limits to deduct a TIRA contribution, but those limits are higher for making a Roth contribution. But for a non covered spouse (husband), there is also a limit due to his wife’s participation in 2019 and 2020 even though he is not covered. That modified AGI limit is the same as for a Roth contribution, and much higher than the income threshold for the wife to take a deduction. There is a chart in Pub 590 that summarizes these limits based on which spouses are “covered”. For either spouse who cannot deduct a TIRA Contribution, if they qualify for a Roth contribution, that is better than a non deductible TIRA contribution. 
  • FInally, if neither spouse qualifies for a deduction or a regular Roth contribution, if that spouse also does NOT have an IRA at all, a backdoor Roth would enable them to make a non deductible TIRA contribution and then convert it to a Roth tax free. If a spouse does have a rollover IRA or pre tax IRA however, that conversion would be mostly taxable.

Finally

Thanks for the response.  So he would not be considered to be covered by a plan for the calculation (even though he’s drawing from his pension)? I believe they are in the income range where he would be able to make a deductible contribution if that’s the case.

Drawing the pension does not constitute being “Covered”, but since his wife is covered he still cannot deduct his spousal contribution if their joint modified AGI exceeds the 196k – 206k phaseout range for 2020. That range was 193k to 203k for 2019. If below those figures he can fully deduct his spousal TIRA contribution.

Got it; they’re a little below that – around $170k modified agi.  Thanks again.

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